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Sanatan Investment Co. Pvt. Ltd. Vs. Prem Chand Jute Mills Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberCompany Petition No. 466 of 1980
Judge
Reported in[1983]54CompCas186(Cal)
ActsCompanies Act, 1956 - Sections 108 and 155- Schedule - Article 43; ;Securities Contracts (Regulation) Act, 1956 - Sections 2, 13, 16 and 18
AppellantSanatan Investment Co. Pvt. Ltd.
RespondentPrem Chand Jute Mills Ltd. and ors.
Appellant AdvocateP.C. Sen, ;H.K. Mitter and ;Dipak Som, Advs.
Respondent AdvocateR.C. Nag and ;Sudipta Sarkar, Advs.
Cases ReferredDaddy S. Mazda v. K.R. Irani
Excerpt:
- .....13, 16 and 18 of the said act that, in the facts of this case, the transactions being spot delivery contracts, the said act has no application to these transactions of shares of a private limited company. mr. sen admitted that the previous application which was dismissed by mr. justice t.k. basu was entirely different, as the said transaction was not a spot delivery, and, in any way, the matter is pending before the appeal court. the said decision is reported in b.k. foldings p. ltd. v. prem chand jute mills : 84cwn876 . in my view, there may be a question whether the said securities contracts (regulation) act at all applies to shares which are not quoted in any recognised stock exchange. however, the matter is pending before the appeal court and the matter will be decided in due.....
Judgment:

Salil K. Roy Chowdhury, J.

1. This is an application under Section 155 of the Companies Act, 1956, for rectification of the share register and/or register of members of the respondents by inserting the name of the petitioner in place and stead of thetransferors, respondents Nos. 2-4, in respect of the shares mentioned inthe petition and for consequential reliefs.

2. The facts are so short and simple that I am really surprised to and that the matter can be dragged on for such a long time on unnecessary hypothetical questions being raised which is based on an earlier application by another company being B.K. Holdings P. Ltd. : 84CWN876 , belonging to the same group of the petitioner company which failed in the trial court and is pending in appeal. On the facts of that case, being a trial, it was held to be hit by the Securities Contracts Regulation Act, and the matter is pending in appeal.

3. The petitioner has purchased two blocks of shares from respondents Nos. 2-4 and paid consideration monies for the same as would appear from the two letters dated 7th March, 1980, and the two agreements one dated 7th March, 1980, and the other dated 21st July, 1980. From the said letters and the agreements which are annexed to the petition it is quite clear that the petitioner has duly paid the consideration for the said shares, which were purchased from respondents Nos. 2-4, and also, the agreements for sale really make it clear that the said shares were purchased against full payments and were 'spot delivery' contracts, that is, delivery of the shares were made along with the duly executed transfer deeds by the sellers to the purchasers against payments of the price for the said shares at the rate of rupees 100 per share. The said documents are not challenged at all by the company but the company is trying to raise a cloud and suspicion in the mind of the court by alleging some sort of cornering or arrangement to purchase block of shares from a group of shareholders of the respondent company with a view to get control of the respondent company and there is an alleged fraud and collusion between the transferor and the transferee, and, one of the attempts by B. K. Holdings P. Ltd., a sister concern of the petitioner-company, having failed in the trial court, which matter is pending in appeal, the present application has been made by getting the agreements and the letters executed by the transferors without actual payments. In my view, there should be a limit to making allegations in affidavits in an application under Section 155 of the Companies Act, 1956, with a view to make it a complicated and disputed question of fact, if possible, by alleging imaginary fraud, collusion and illegality, as the company has tried to do, by an eminent counsel appearing for them. But it is a well-settled principle that when there are admitted documents which cannot be disputed and are in fact, admitted, they should be relied on, more than disputed questions of facts either oral or by affidavits, and suggestions were made so that the matter should be tried on evidence following the principle laid down in the case of Daddy S. Mazda v. K. R. Irani : 78CWN872 .

4. Mr. P.C. Sen, appearing with Mr. H.K. Mitter and Mr. Dipak Som, for the petitioner, placed the facts before me being the petition, affidavit-in-opposition and the affidavit-in reply and the annexures thereto, and submitted, and in my view quite rightly, that the company purchased the shares from the transferors against payments of full consideration money and got delivery of the share certificates along with the duly executed transfer deeds which were in their turn duly submitted to the respondent company for registration according to the provisions of the Companies Act, 1956. The letters of lodging the said shares for registration dated 21st March, 1980, and 24th June, 1980, which the company refused to register by their letters dated 19th May, 1980, and 10th September, 1980, and are all annexures to the petition, were placed before me. There is another letter of refusal dated 26th September, 1980. There is no question as to non-compliance with Section 108 of the Companies Act, 1956, but in the letters of refusal it is alleged that the said shares were not registered in view of art. 43, which, Mr. Sen rightly submitted, has no application in this case as that only applies to shares which are not fully paid up or to shares on which the company has alien. The shares in question are not affected by the said infirmities as admittedly the shares are fully paid up and there is no lien on the said shares. Therefore, on the face of it the refusal is illegal, wrongful and unjustified, and consequently, in the present application, Mr. Sen submitted, and in my view quite rightly, drawing my attention to the definition of 'spot delivery' under Section 2(f) of the Securities Contracts (Regulation) Act and also to Sections 13, 16 and 18 of the said Act that, in the facts of this case, the transactions being spot delivery contracts, the said Act has no application to these transactions of shares of a private limited company. Mr. Sen admitted that the previous application which was dismissed by Mr. Justice T.K. Basu was entirely different, as the said transaction was not a spot delivery, and, in any way, the matter is pending before the Appeal Court. The said decision is reported in B.K. foldings P. Ltd. v. Prem Chand Jute Mills : 84CWN876 . In my view, there may be a question whether the said Securities Contracts (Regulation) Act at all applies to shares which are not quoted in any recognised stock exchange. However, the matter is pending before the appeal court and the matter will be decided in due course. But I am not concerned in any way with the questions which arose in the previous application of B. K. Holdings Pvt. Ltd., a sister concern of the petitioner. Mr. Sen referred to the decisions in Vidyasagar Cotton Mills Ltd. v. Nazmunnessa Begum [1964] 34 Comp Cas 704 (Cal), Rangpur Tea Association Ltd. v. Makkanlal Samaddar : 76CWN392 and my decision in Madanlal Patodia v. Luxminarayan Cotton Mills Ltd. , the Supreme Court decision in Bajaj Auto Ltd. v. N.K. Firodia [1971] 41 Comp Cas 1 , also the decision of the Kerala High Court in South Indian Bank Ltd. v. Joseph Michael [1978] 48 Comp Cas 368, wherein the principles on which the court is to grant relief under Section 155 of the Companies Act, 1956, are laid down and also in the last case it was held that cornering of shares cannot be said to be illegal or wrongful in any way as there is nothing against public policy, illegality or fraud therein. Relying on the said principles, and in my view quite rightly, Mr. Sen submitted that in this case order should be made as prayed for. Further, Mr. Sen produced the bank statement wherefrom it appears that payments of the consideration were made to the shareholders, being the transferors, which are debited to the account of the petitioner company.

5. Mr. R C. Nag appearing with Mr. Sudipta Sarkar, for the respondents, strenuously argued relying on the principles laid down in Daddy S. Mazda v. K. R. Irani [1977] 47 Comp Cas 39 and submitted that this is a case where the question of illegal and wrongful arrangement has been entered into between the petitioner and their sister concern with a group of shareholders of the respondent company to acquire the controlling block of shares in the respondent company and the matter should be tried on evidence. He submitted that the decisions cited by Mr. Sen have no application to this case, where, once the question of Securities Contracts (Regulation) Act being held applicable and the application being dismissed, which is reported in [1983] 53 Comp Cas 367 in B.K. Holdings P. Ltd. v. Premchand Jute Mills. The petitioner has created those evidences to show spot delivery which have been procured by fraud and collusion between the petitioner and the shareholders to avoid the consequence of the Securities Contracts (Regulation) Act, if possible, as it was held in the case of B.K. Holdings Pvt. Ltd. by Mr. Justice T.K. Basu which is reported in : 84CWN876 . Mr. Nag also submitted that the matter should be tried on evidence as the question has been raised of an illegal arrangement between the transferors and the petitioner company for the transfer of the said block of shares and, therefore, the matter should be set down for trial on the principles laid down in the said Daddy S. Mazda's case : 78CWN872 . He also referred to a decision in Turner Morrison & Co. Ltd. v. Shalimar Tar Products (1935) Ltd. . Therefore, he submitted that the application should be dismissed.

6. After considering the respective contentions very carefully I am of the view that a very simple case is sought to be made complicated by raising imaginary and fictitious questions only to raise suspicion in the mind of the court, if possible. It is a well-settled principle that on mere suspicion and surmise the court cannot act and base its findings on the same. It is also well-settled that in a Section 155 application for rectification of share register under the Companies Act, 1956, if the case is clear and simple and presents no difficulty, the court can make an order and the said section should be liberally construed and where the transferors themselves are not objecting or have not come forward to challenge the consideration, it is not for the (respondent) company to come up and challenge the same. That would be against documentary evidences which are not disputed, but sought to be challenged on the ground of alleged collusion and connivance between the petitioner and the (transferor ?) company without any evidence. If this principle is to be accepted, then, and in my view, any application under Section 155 of the Companies Act, 1956, can be defeated by any company by simply raising in an affidavit such an absurd proposition which is contrary to undisputed documents which show a clear admission by the transferors of payments of consideration against delivery of the share certificates and the duly executed transfer deeds to the purchaser, the petitioner company in this case. In my view, the principle laid down in Daddy S. Mazda v. K.R. Irani : 78CWN872 has no application and also the decision of T. K. Basu J. in B. K. Holdings Pvt. Ltd. : 84CWN876 is also irrelevant for the purpose of this application.

7. It was insinuated by Mr. Nag that with a view to avoid the consequence of the Securities Contracts (Regulation) Act and the said judgment of T. K. Basu J. in B, K. Holdings Pvt. Ltd. : 84CWN876 , the petitioner has brought into existence the said letter and the agreements to show consideration and spot delivery of the shares. It is now well-settled that if a person can lawfully arrange a matter in such a way as to avoid the consequences of an Act, there is no question of evasion or any illegality or anything against public policy. The acts are quite lawful and well recognised by various well-known decisions including that of the Supreme Court. Reference may be made to the decisions in Woman Shriniwas' Kini v. Ratilal Bhagwandas & Co., : AIR1959SC689 , and CIT v. A. Roman & Co. : [1968]67ITR11(SC) .

8. Further, I may point out that the decision of T. K. Basu J. (B.K. Holdings P. Ltd. v. Prem Chand Jute Mills : 84CWN876 ), is under appeal and the question is to be decided finally whether the said Act, being Securities Contracts (Regulation) Act, has any .application to a transaction in shares which are not quoted in a recognised stock exchange in which the regulation of transactions, etc., prima facie, appears to be the object and purpose of the said Securities Contracts (Regulation) Act. Be that as it may, the present case is a case which does not at all come within the purview of the said Act, being on the face of it on documents which cannot be disputed are spot delivery contracts and the materials are more than sufficient to prove by documentary evidence that the transactions took place against payment and delivery of certificate of shares along with the duly executed transfer deeds. Therefore, the case comes squarely with the decision of mine in Madanlal Patodia v. Luxminarayan Cotton Mitts Ltd. . Further, the transferors have not come forward to challenge the said consideration, which is not open to the company to challenge by a circuitous method and raising suspicion in the mind of the court by alleging an illegal arrangement to corner or to get control of the respondent-company entered into between a group of shareholders and the group, of companies of, the petitioner-company. In these circumstances, I have no hesitation in rejecting the contentions of Mr. Nag although it was very forceful relying on the principles laid down in Daddy S. Mazda v. K.R. Irani : 78CWN872 . But the facts are entirely different and clearly distinguishable and being a case, like this, which is to be decided under Section 155 of the Companies Act, 1956, it becomes meaningless and nugatory and can be made use of by any company whenever they choose to refuse the registration of a transfer by a rectification of the share register by raising imaginary questions directly contradicting undisputed documents. Further, the letters by which the company refused to transfer have no application as art. 43 read with art. 40 cannot be said to be applicable in the facts of this case as the shares are all fully paid up and there is no lien of the company against the said shares is an admitted position. Therefore, I have no other alternative but to reject the objections raised on behalf of the company as frivolous, dishonest and against all principles of commercial morality, probity, honesty and public policy.

9. In these circumstances, the order should be made as prayed for.

10. In the result, I am making the following order.

11. There will be an order in terms of prayer (a) of the petition. Respondent No. 1 to pay the costs of this application.


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